zdl_cryptofandomcom-20200214-history
MetaCoin
Basics * An alternative to MakerDAO. * MetaCoin aims to be a governance-minimized, single collateral, permissionless stablecoin. On Why * From this announcement (10-2-2020): "The complexity MakerDAO also hides centralized points of failure, some of which are exceptionally severe and can result in a catastrophic and instant loss of all ETH in the system. Case in point, MakerDAO currently has at least four custodians , each of whom can, at will, steal 100% of the ETH collateral deposited in MakerDAO, also print a gajillion DAI, and then use that DAI to steal 100% of the ETH liquidity offered for the ETH/DAI pair across all decentralized exchanges (e.g. Uniswap) and lending protocols (e.g. Compound). The custodians, the Maker Foundation, a16z, PolyChain, and Dragonfly, could execute this entire heist in a single atomic Ethereum transaction, before anyone has a chance to respond." Biggest Differences with Maker * From Token Tuesdays (12-2-2020): "The two biggest changes in MetaCoin’s design are Uniswap price oracles and the role of governance in setting the interest rates. With Maker, price oracles are selected by governance and submitted with price updates every 6 hours. With MetaCoin, the governance system does not select the price oracles and instead selects the basket of fiat-backed stablecoins where Uniswap’s volume-weighted average price determines the reference price for ETHUSD. In terms of governance and interest rates, MetaCoin eliminates manual intervention of stability fees from governance decisions and instead uses a PID controller to algorithmically determine the proper interest rate so that 1 COIN = $1 USD. This is a drastic change from Maker where MKR holders are able to vote on the stability fee in order to best target 1 DAI = $1. In Maker, raising the stability fee is supposed to decrease demand and disincentivize new minting." Specs * From this announcement (10-2-2020): "In light of MakerDAO’s recent upgrade to Multi-Collateral DAI (MCD) and decision to abandon ETH as the sole form of collateral (thereby introducing counter-party risk for offchain assets), it’s worth considering what a governance minimized, ETH-only system might look like. The goal of such a system isn’t be to usurp DAI’s position as the de facto decentralized stablecoin, but rather to create a safe alternative for those who have different risk preferences. One potential design for such a system (MetaCoin) has the following components: * a governance & rewards token called META * a stablecoin called COIN * minting new COIN when ETH only is deposited * a token curated registry (TCR) of fiat-backed stablecoins (i.e. USDC, USDT, TUSD) * the volume-weighted average price of the stablecoin basket on Uniswap as the price oracle * liquidation of ETH collateral if the price crashes * variable interest rates charged to COIN minters to target 1 COIN = $1 * an algorithmic controller (PID) that autonomously updates interest rates The most important differences between MakerDAO and MetaCoin are the price oracles and the role of governance in setting the interest rate. The general idea of depositing ETH collateral to mint new stablecoins (DAI or COIN), and actively liquidating those minters if their collateral value drops, is preserved. In MakerDAO, the price oracles are selected by the governance and submit updated prices every 6 hours. The median of all reported prices for the duration is used to determine the reference price for ETHUSD. In MetaCoin, the governance system does not select price oracles directly. Instead, the governance selects several fiat-backed stablecoins (i.e. USDC, USDT, TUSD), and then uses the volume-weighted average price of that basket on Uniswap to determine the reference price of ETHUSD." META * A governance & rewards token Initial META Distribution * From this announcement (10-2-2020): "The initial distribution of META tokens will be split 50/50 between Blood and Sweat. Members of MolochDAO and MetaCartel DAO who have bled together in sacrifice to fund ETH-aligned grants will receive 50% of the initial META, based on their share of the total ETH spent on grants. This favors those who have bled the most, instead of basing the distribution on current shares which could have been recently purchased. The rationale for this is my belief that having a strong initial community of ETH-aligned members is be critical for the success of MetaCoin, and in my view there is no stronger metric for alignment than those willing to bleed for a cause. The other 50% of the initial META will be distributed based on Sweat. The founding team will summon a SweatDAO (a MolochDAO clone), which we will use to assign ourselves shares based on the relative value of our contributions. If fundraising is required, investors will be permitted to offer tribute to SweatDAO to earn shares. The 50/50 breakdown assumes that the value of Blood and Sweat are roughly equal. MolochDAO and MetaCartel DAO combined have bled roughly $400K in grants, so the assumption is that MetaCoin will take roughly $400K in Sweat to launch. If MetaCoin takes more than $400K to launch, we can adjust the initial META distribution accordingly. For example, if $1.2M of Sweat is required to launch, Blood would receive 25% and Sweat would receive 75% of the initial META distribution." * From Token Tuesdays (12-2-2020): "The only point of criticism is that early founders like Ameen and existing MolochDAO members (who are likely also working on MetaCoin) will likely receive a double-serving of the initial distribution, creating a potential concentration in the token distribution in the very beginning. We’d personally like to see an exploration of a more permissionless mechanism for prospective community members to contribute and earn a share of the initial distribution. It is currently unclear how inclusive SweatDAO will be." COIN * A stablecoin. Governance & Interest Rates * From this announcement (10-2-2020): "In MakerDAO, besides selecting price oracles, the governance also votes on the “stability fee”, the variable interest rate charged to DAI minters in order to target 1 DAI = $1. The general idea is that if 1 DAI < $1, then the stability fee must be increased, making it more expensive for DAI minters, and incentivizing them to redeem their DAI (buying it back if they must) and withdrawing their ETH collateral. Likewise if 1 DAI > $1, the stability fee is decreased to incentivize additional minting. The general cadence of these governance-initiated interest rate updates is roughly once per week. In MetaCoin, manual intervention in the stability fee adjustment is replaced by an algorithmic PID controller. From Wikipedia: A proportional–integral–derivative controller (PID) is a control loop mechanism employing feedback that is widely used in industrial control systems and a variety of other applications requiring continuously modulated control. The PID controller is be implemented as a smart contract that takes the current price of COIN, compares it to the volume-weighted average price of the stablecoin basket (used as a reference point for $1), and automatically updates the interest rate based on the difference. The parameters for a PID controller must be carefully selected for the controller to operate properly. Interestingly the success of MakerDAO over the past several years in maintaining the DAI peg by manually changing the interest rate in response to market dynamics provides the best available data to determine the controller parameters. To minimize governance, the controller is dumb and parameters is not be able to be updated once launched. This introduces the risk of runaway feedback loops (think Takoma Narrows) which motivates the need for a way to safely shutdown and exit the system if it is improperly parameterized or externally manipulated. The controller also requires an on-chain price feed for COIN in order to operate. This is different from MakerDAO because the governance uses off-chain price inputs (e.g. centralized exchanges) in order to decide on the interest rate updates. As a result, MetaCoin also needs to intrinsically incentivize liquidity of COIN on Uniswap to be the price feed for the controller." One interesting feature MakerDAO introduced in their MCD upgrade is the “DAI Savings Rate” or DSR, which is also set by their governance. Complimentary to the stability fee, the DSR rewards DAI holders interest simply for holding DAI, and can be adjusted, similar to the stability fee, to incentivize buying and holding DAI. Likewise MetaCoin’s interest rate will operate on both COIN minters and COIN holders symmetrically. If for example a 10% interest rate is being charged to COIN minters to incentivize them to redeem their COIN and withdraw their ETH collateral, the COIN holders earns 10% to incentivize the buying and holding of COIN. Both effects work together to bring the price of COIN back into equilibrium with the $1 reference point and stabilize the peg." Voting Rights * From this announcement (10-2-2020): "In MetaCoin, the only things subject to a vote are adding/removing stablecoins from the basket, and shutting down the system. As a result, the voting distribution can be more inclusive of the system’s users. Several parties have voting power: * COIN minters * COIN holders * COIN/ETH liquidity providers * META holders These parties have voting power proportional to the value of their exposure to the system. So 1 COIN = 1 vote, and likewise collateralized ETH, liquidity shares, and META each have voting power equal to their value in COIN (where it is assumed 1 COIN = $1). By way of example: * User A deposits $100 worth of ETH to mint 50 COIN, they have 100 votes * User A transfers 50 coin to User B, now User A has 50 votes (from their ETH collateral) and User B also has 50 votes (from their COIN) * User B puts their 50 COIN along with $50 worth of ETH into Uniswap to provide ETH/COIN liquidity, they now have 100 votes (50 more for the $50 of ETH they are exposing to the system) * User C has $100 worth of META, they have 100 votes" * From Token Tuesdays (12-2-2020): "All parties will have voting power proportional to their value exposure to the ecosystem at large. 1 COIN will equal 1 vote. This can translate across all parties as a user with $100 in liquidity on Uniswap (i.e. 100 COIN) will have 100 votes. Users with $1,000 in META will have 1,000 votes and so forth. This inclusive mechanism should bring a more permissionless dynamic towards governance over the system as all parties will have a say in the fundamental aspects of the system including the basket of fiat-backed stablecoins as well as the need to conduct an emergency shutdown." META Rewards * From this announcement (10-2-2020): "In MakerDAO, the interest rate charged to DAI minters is used to buy and burn MKR, resulting in value appreciation for MKR holders. More specifically, the DAI earned from the accumulated interest payments is sold for MKR via a smart contract mediated public auction, after which the MKR is burned. MetaCoin copies this model, but with a few tweaks. As mentioned above, MetaCoin will have symmetric interest rates charged to COIN minters and offered to COIN holders. However, a 10% spread will be charged as a fee. To update the example above, if COIN minters were being charged a 10% interest rate, then COIN holders only receive 9% interest on their COIN, with the other 1% being taken as a fee. The other tweak is that instead of a public auction, the fee earnings are simply be used to buy META on Uniswap, after which it is still be burned." * From Token Tuesdays (12-2-2020): "MetaCoin draws from Maker's model with a few new economic design choices. Metacoin uses a spread on COIN savings rate and the interest charged to COIN minters. As an example, if there’s a 10% interest rate (i.e. stability fee), 9% will be distributed to COIN holders while the other 1% will be taken as a fee. The difference here is that rather than using the accumulated interest to auction for MKR, the fee earnings will simply be used to purchase META on Uniswap for burning. In order to incentivize COIN/ETH liquidity on Uniswap, MetaCoin proposes to offer a fee split between: * META holders and COIN/ETH liquidity providers * Added inflation to META directed towards liquidity providers, or * Accept COIN/ETH liquidity shares as a collateral type for minting new COIN. All of these options could be viable and it will be interesting to see which is implemented as the fee-splitting or the native inflation seems the most intuitive. The important part here is that MetaCoin is taking a page from Synthetix’s success and allocating a subsidy towards liquidity providers - something Maker has yet to do while also something the token struggles with (~28K in real volume according to Messari)." Critical Responses * Some people immediately (10-2-2020) responded to the announcement. Unstable PID control "My main point here is that PID control is liable to be extremely unstable when dealing with something as uncertain as an economic system of this magnitude, but thankfully there are solid areas of research in Control Theory that will be better suited to this type of system." Reyling on DEX's and Stablecoins as oracles "I am very weary about any DeFi project relying solely on DEXs for price data, as we’ve seen with the recent Kyber vulnerability, it is fairly trivial to manipulate prices in the short term. To mitigate this you could use the volume weighted price as you said, but then you wouldn’t be getting real time price data which can a serious issue when using volatile cryptos as collateral as prices can move very very quickly. This could adversely affect the liquidation process and in the worst case scenario could lead to a system that is undercollateralized. Using stablecoins as a proxy for USD for price feeds is extremely dangerous. When using DAI/sUSD markets you’re relying on a small group of oracles (smaller than what chainlink currently offers) and when using USDC/USDT/GUSD/BUSD/TUSD markets you’re relying on a centralized institution. Both kinds of stablecoins can’t guarantee that the peg will hold, and thus it shouldn’t be assumed that’s it’s the same as the USD exchange rate. Even using multiple stablecoins won’t help as many stablecoins suffer from the same systemic issue. Additionally by relying on just DEXs for price data, you’re not getting a market-wide view of the price/liquidity, only a small subsection that is not nearly as liquid as its centralized counterparts. To get the most accurate price data you need to aggregate from all available exchanges (DEXs and CEXs), and so you will always need an external oracle network when fetching accurate price data. Oracles will end up becoming the attack vector, so they will need to be security-hardened by having the same properties as blockchains: namely decentralization and no single point of failure. Decentralization (of both the oracle nodes and the data sources) assure the reliability and tamper-proofness of the price feed data that ultimately determines the actions a smart contracts makes." Ameen responded: "I think not having the most accurate pricing data is sort of OK. We would be consciously making the trade off to not have price oracles in the design and instead favor the DEX provided volume weighted average of the selected fiat-backed stablecoins. Uniswap v2 will have moving-averages built-in." Another person commented: "A major reason for the success of the sETH/ETH pool is because there is no opportunity cost loss on price movement. This makes the added incentive “pure profit”. This would not be the case with COIN/ETH" Fees "The fees seem a little wonky though. If you charge a 10% interest rate to coin minters and offer a 9% interest rate to COIN holders, the amount left over for fees will be greater than the 10% fee you specified (unless everyone that mints coins then puts them in the holding contract). Unless, maybe you’re thinking of not having a savings contract and just airdropping the 9% interest rate somehow?" Ameen responded: "To be honest, I was handwaiving and hadn’t considered it in detail. This is an excellent point, thanks! I guess I don’t really understand why the CHAI-like functionality can’t be built-in. I’ll think about it more." Completely Govern-less "what really interests me is whether it would be possible to push just a little further with this, and “finish the job” - i.e., can governance be eliminated completely? Really just spitballing initial thoughts on this, but to address the two proposed topics subject to votes by governance: * Adding / removing stablecoins: Let’s assume that sourcing VWAP data is workable, either from Uniswap V2 or from another AMM / DEX. In that event, imagine that anyone can add a new stablecoin by simply proving that f(priceHistory, volume, totalSupply, tokenDistribution, ...) was sufficient to make it a contender, or conversely that it no longer met the required parameters and could be removed. Cooking up appropriate parameters and weights at the onset would of course be the hardest part… but then again, a few may get it right if a thousand MetaCoins bloom '' * ''Triggering a “Happy Ending” could also be accomplished via programmatic means under certain conditions, like if the pool of underlying stablecoins got too thin or if the PID somehow ended up in an unacceptable state. That being said, what if you did away with the idea of global settlement entirely and replaced it with ongoing settlement - call it a “Happy Beginning” - where COIN can be redeemed for ETH at some conservative discount at any point? Assuming there’s merit to either of these proposals, the obvious next question is whether META is still necessary. Who would want to hold a governance token if it’s not going to be used for voting? Well, given the point on low participation earlier, seems like the answer is that a lot of people would still want to hold it. Even without governance, META would provide the clever, inflation-driven liquidity provider bootstrap - it just becomes a bet that buy-and-burn going forward will offset it." Meta's Value "The META tokenomics is interesting. MKR begs the question of the value of a governance token. And honestly the more centralized something is the more value a governance token has (as long as the value of the system grows) but only up until a point. With limited voting power (not that many decisions to be made) why should I want to hold this token? If it is to help insure some level of decentralization and that “my voice is heard” then its kinda like running a bitcoin node which we have seen people will do with no direct incentive. " New Layer of Trust * From Token Tuesdays (12-2-2020): "there’s a degree of trust added with the use of fiat-backed stablecoins as a basket for the price oracle to reference as the system must rely on those assets to maintain their peg over time. However, in order to successfully disrupt the MetaCoin system, all of these stablecoin operators would have to collude at the same time." Coin Distribution * From Token Tuesdays (12-2-2020): "The only point of criticism this way of distribution is that early founders like Ameen and existing MolochDAO members (who are likely also working on MetaCoin) will likely receive a double-serving of the initial distribution, creating a potential concentration in the token distribution in the very beginning." Team * Ameen Soleimani; Founder, also the founder of Spankchain / MolochDAO